Is this the black-swan event people have been predicting for years?
By Wolf Richter. This is the transcript from my podcast last Sunday, THE WOLF STREET REPORT:
The numbers are getting bigger every day. As of the end of Saturday in China, there have been over 14,000 confirmed cases of the novel coronavirus, which originated in Wuhan, a city with 11 million people, in Hubei province. 304 people have died in China, according to official numbers.
And there are reports coming out that confirm suspicions that official numbers in China may have to be taken with a grain of salt. According to a report by the New York Times today, Chinese authorities silenced doctors and others who were seeing the first symptoms starting in early December. Authorities obfuscated even the basics: for example, they told the public that they closed the food market, where the virus had first infected humans, for renovations.
This crackdown on doctors and others kept people in the dark, prevented them from taking protective measures, delayed an effective public health response, and allowed the virus to spread.
What the Chinese government is still not telling the public, or what it is telling the public that is wrong, just adds to the list of known unknowns that the economy and markets have to deal with.
And now there are fears what unknown unknowns may still be lurking out there that might surprise everyone.
Maybe all this will blow over in a few weeks, and China’s economy goes back to normal, with just another flu-like disease on its hands, running in parallel with the flu.
Or maybe it will drag out and get worse and more complicated and more insidious, as baffled authorities lumber from what with hindsight may look like one wrong decision after another, and then the repercussions are going to spread.
One thing we already know: 14 provinces and cities that account for nearly 70% of China’s GDP have now shut businesses and factories until at least February 9.
In the US, 8 cases of coronavirus have been confirmed. In Japan 17. None of these patients have died. But in the Philippines, a Chinese man, traveling from Wuhan, has died of the coronavirus, the first death outside China.
On Friday, the US Department of Health and Human Services declared a public health emergency and said that foreign citizens who’ve traveled anywhere in China within the past 14 days will be denied entry to the US. And it said that US citizens who had traveled in Hubei province will be quarantined for up to 14 days.
We don’t know yet what the coronavirus will end up doing, though we know what the flu virus has already done so far this year in the US alone.
The CDC estimates that this flu season in the US alone, that medical conditions caused by the flu have killed at least 10,000 people. The top end of the CDC’s weekly estimate now sits at 25,000 deaths, with somewhere around 20 million Americans infected with the flu, and we’re only about half-way through the flu season.
Globally, the flu has killed between 290,000 and 650,000 people each flu season in recent times.
But there are differences between the flu and the novel coronavirus.
This coronavirus is new, and there is no vaccine, while the flu is a known issue that kills tens of thousands of people in the US every year, and hundreds of thousands of people globally every year, though there is a vaccine which is only moderately effective, and tens of millions of people in the US alone get sick every year, and miss work and stop shopping and cancel trips.
But because it happens every year, it’s part of the seasonal economic ups and downs, and it’s baked into the cake of life, so to speak, and it’s baked into the economy and into financial markets.
But this coronavirus is new, and it’s in addition to the ravages of the flu. The flu will kill tens of thousands of people in China this flu season. The coronavirus is in addition to that. And preliminary data indicates that the coronavirus death rate is quite a bit higher than the death rate of the flu, though it’s not nearly as high as the death rate of SARS was.
And there is something else that is different – the reaction to the virus by authorities and large and small economic players, spreading across China, from draconian quarantines and lockdowns of entire huge cities and travel restrictions, to closed universities, cafe chains, stores, and manufacturing plants.
Entire transportation systems have gotten shut down. People stopped going places – and this was the Chinese New Year when nearly all of China goes somewhere. And just plain daily life has been disrupted in the affected areas, as the fear of infection is keeping many people at home. And economic activity has dropped.
Economic activity doesn’t need to drop a lot in an economy as vast as China’s before it has an impact globally.
On Monday, February 3, the financial markets in China will reopen, after having been closed since the end of trading on January 23rd for the New Year break. Over the last five trading days before the break, the Shanghai Composite index dropped over 3%.
Markets were supposed to have reopened on Friday, January 31, but authorities extended the national holiday to get a better handle on the markets before they re-open.
Chinese government entities, state-owned financial firms, and regulators, along with big financial market participants will try to keep the bottom from falling out of the markets, as they have done in the past.
Authorities have urged market participants to not panic and to remain calm. China’s securities regulator urged investors to look at the coronavirus “rationally and objectively.” And it urged investors to “adhere to the concept of long-term investment and value investment.”
And the People’s Bank of China said it would drown the market in liquidity over the next few days to prop up the markets.
Nevertheless, I expect some fireworks in Chinese markets on Monday, as markets are trying to price in the known unknowns, and as they’re trying to figure out what the unknown unknowns might be.
Authorities may also counter this with some monetary and fiscal stimulus in order to prevent further slowing of the Chinese economy. The defaults in corporate debt are already spooking said authorities; and at smaller and regional banks, loans have soured to such an extent that bailouts are now happening in a routine manner. The coronavirus comes on top of it.
One thing that is becoming increasingly clear: the reaction to the coronavirus will be a blow to the Chinese economy, at least for the period that these measures are in place, and some of it will percolate around the world.
Transportation and tourism outside China are already being impacted. A number of airlines have canceled flights in and out of China. Foreign citizens who’re coming from China, in particular Chinese citizens, are no longer allowed into a number of countries.
In many places, tourists from China have become the largest group. Suddenly, they’re not showing up. They’ve made reservations, but they’re not coming. This impacts the tourist industries in cities like Paris, San Francisco, and Tokyo.
China has become the largest market in the world for passenger vehicles. Peak sales occurred in 2017, with nearly 25 million cars and light trucks delivered. But in 2018 and 2019, sales fell by a combined 13% from 2017. This year already started out on a bleak note, and then the coronavirus hit.
It is hitting in two ways:
One, auto sales: people have cut back on going out and doing stuff, and buying things, and in some of the most affected areas, auto sales have come to a near-standstill.
And two: production. Auto manufacturing is one of China’s official key industries. All major global automakers have plants in China. Most of the vehicles sold in China are made in China.
Some of the biggest automakers in China, including Volkswagen and GM, have announced that they closed at least some of their plants through February 9. Tesla’s Gigafactory in Shanghai also suspended production before it ever got going properly. And companies across the board have warned that they anticipate disruptions.
The components industry in China is huge. And it faces similar shutdowns that will then translate into supply chain disruptions for automakers.
Research firm IHS Markit said that if the coronavirus spreads rapidly across China, it could entail a further wave of plant closings that might drag into mid-March, and this could slash auto production by as much as 32%.
In terms of global automakers, if the disruption to their global supply chains and the plunge in sales in China lasts much beyond February 9, they’re going to show up in their first-quarter earnings calls, or before. And this includes GM, which is a huge player in China.
The reduction in every-day activity in China and the shutdown of part of the transportation system, including the cancellation of countless flights, is going to impact global demand for crude oil. And this already hit the beaten-up US shale oil industry.
The crude-oil benchmark grade, WTI, was trading at over $60 a barrel at the beginning of the year. It has since then slumped by 15% to below $52 a barrel, the lowest level since early August. This comes at the worst possible time for US shale oil producers, which are already reeling from overproduction, losses, and bankruptcies.
There are other industries that will be impacted by the reaction of authorities and economic players to the coronavirus.
But for once, the big trade deficit that the US has with China ensures that even if demand takes a nose-dive in China, it’s going to hit the US economy to a much smaller extent.
Supply-chain disruptions may become a headache for manufacturers in the US, particularly in industries with sophisticated machined products, such as the auto industry, that cannot be re-routed quickly.
And a general slowdown in the global economy is going to impact the US. Tourism and the entire travel industry, and airlines are going to take a hit, at least temporarily.
But here is the thing: health scares have a tendency to blow over fairly quickly, in terms of their economic impact. In the past, they disrupted things for a few months, and then everyone got used to it and adjusted to it, and companies found partial solutions and workarounds, and life sort of went back to normal.
The flu is a big killer, but has been baked into the economic pie. Companies and people live with it. Other diseases came and went. SARS has essentially disappeared.
Human nature is resilient and resourceful, and economies will get through this.
So I expect a significant impact in China in the first quarter, and I expect a small impact in the US economy. It’s going to put more pain on the US shale oil industry, but it was already in trouble before this started.
And if disruptions drag out, I expect troublesome supply chain issues that will eventually get worked out. Broadly speaking, inventories are high in the US. And there is a buffer for many products.
But the biggest factor is just how concentrated the US economy is on services and on consumer spending – not manufacturing.
So beyond some limited sectors, I don’t expect a huge impact in the overall US economy. I don’t think this is the black-swan event that people have been predicting for years. I expect that the reaction to the coronavirus will eventually settle down. This may happen over the next few weeks, or it may take longer, but it will settle down.
The outbreak of a health threat – whether it’s Ebola, SARS, or the coronavirus – always causes an uproar in the US media, and rightly so because people should know about it. But the economic impact of these health threats in the US – and that’s the key here, in the US – has been only minor in recent times.
The big thing that can kill the US economy is a disease in the financial system, as we have seen. The US economy runs on credit, and when credit gets the flu, as we have seen during the Financial Crisis, when banks and other financial firms threaten to collapse, that’s when all bets for the US economy are off.
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Corona virus is treated by hiv drugs. Also it’s RNA genome sequence involves 4 hiv insertions indicating that this was a bioweapons product. So we are looking at a cross between hiv and influenza. If it is hiv, the virus is weakened and will remain dormant for years before becoming aids. Finally, China will not shut down 70% of their GDP over just a flu variant. The response tells us something.
The problem we are potentially facing is bigger than we may think, especially since China is not known for transparency.
The so-called HIV sequences are shared by many viruses, are not HIV-specific, and the published report on such was non peer reviewed report by previously unknown Indian scientists.
And to which anti-HIV drugs do you refer? None that I know of (and I was a virologist).
The only real point of interest is whether the non-infection of caucasians remains (with the viral infection being restricted to Chinese and asiatics) that might point to a trial run of an HLA targeted bioweapon.
I think AZT, thymidine variants, anti-HIV and anti retero viral therapies.
if coronovirus have RNA genome, it makes sense. Because HIV is also a RNA virus. This is similar to broad spectrum antibiotics, given by doctors for a wide range of bacterial infections. Obviously, this is a new virus infection and now human are the guinea-pigs. to test the treatments.
Agreed! I dont know what it would take for the market to have a correction?
Why is it so important for rhe market to stay up and keep rising without a healthy correction? Any little pull back and the news outlets make a big dealnout of it. Are alot of loans secured by inflated securities and there is concern that bamk loans will be defaulted on if the market doesnt continue to rise or at least stay up?
I’m asking cause I really dont know but I do know that it’s worth looking at who would be the big wi ners and losers if the market dropped by say 20-25%.
Don’t know how to tell you this but the reason the 1% needs to keep the market up is because when it does fall, it is going to be a complete collapse of our financial system. The global financial crisis was caused by debt and the Fed/Govt fixed the problem with more debt. This next downturn will rival the great depression. You need to buy some gold and silver for financial insurance.
TJ indeed Good advice and some of us have been doing just that for a long time
reply to ‘Dave:’
I think we’re at the stage in the stock market where the hoi polloi are piling-in because of FOMO. The correction/crash would come in a year or two, or sooner if Trump doesn’t get reelected.
1. Trump re-election is more important than putting market in investor’s hands.
2. Every country’s central bank needs to make sure their own country won’t go cheap before other countries go cheap first. Other wise, other country’s central bank can just print and buy asset of the country whose central bank can NOT maintain their asset price. This is a matter of national security.
3. Before the market go cheap, the 1% needs to dump assets to 99% bag holders. In this market. the 99% is NOT capable to become the bag holder, so they won’t allow it to sink. They need to get the 99% borrow money to off load their asset to 99% before it sinks.
This is why the market is too important to leave it to the investors.
This is one report about HIV drugs used to fight the coronavirus:
“Bangkok: Thai doctors have seen success in treating severe cases of the new coronavirus with combination of medications for flu and HIV, with initial results showing vast improvement 48 hours after applying the treatment, they said on Sunday.
The doctors from Rajavithi Hospital in Bangkok said a new approach in coronavirus treatment had improved the condition of several patients under their care, including one 70-year-old Chinese woman from Wuhan who tested positive for the coronavirus for 10 days.
The drug treatment includes a mixture of anti-HIV drugs lopinavir and ritonavir, in combination with flu drug oseltamivir in large doses.”
Thai doctors supposedly used HIV drugs- N of what, 5? And what drugs exactly? And what else did they do? And what was the patients age and condition of each patient on presentation to the physicians? And was it a double placebo controlled study or what? How many of this tiny sample of patients would have recovered with no treatment?
@Freewary: There is no “double placebo controlled study” yet for patients outside China because diagnosed patients for this virus didn’t even *exist* outside China until about six weeks ago. Today there are about 250 diagnosed cases outside of Mainland China.
China is obviously heavily censoring and controlling the flow of data. They were arresting doctors who warned about the possibility of a pandemic until about four weeks ago as “panic mongers”. I doubt if any clinical trials would have been approved during such an official state of denial. Now that there is an actual pandemic, doctors in places such as Wuhan don’t have any spare resources of time, energy, and personnel to do such studies.
Is the data incomplete and are the pre-prints not peer reviewed? Well, yes, but it’s all we have right now.
It may impact the economy but it won’t impact the market , upon any negative news the central banks will print money or cut rates and the markets will rip higher. Nothing to see here
Are you saying this is aids gone airborne Anmol?
Yup, Joan. I want to know what happens to these so-called cured patients 6 months down the line. A virus is typically not removed from the system, it is weakened. What happens to this virus when we get our annual flu? Will the influenza and Corona virus be symbiotic?
” ‘Are you saying this is aids gone airborne Anmol?’
Oh for God’s sake, it’s not airborne AIDS. Stop talking nonsense.
I’m taking this seriously, including a reasonable larder and ability to self-quarantine for a while if necessary, but stop making things up whole cloth.
The kid has a point. Post infection some flu strains develop into syndromes, if you ever had a flu strain which lingered for months. The possibility of catching the flu twice (once when the 10% solution didn’t work) and again, might be the equivalent of a pre-existing condition, which could spike mortality rates. Additionally this is fairly easily transmitted. Thirdly it happened in a city where China’s National Biolab resides. So it is novel, indeed. Then they are treating it like the Andromeda Strain, like they know something we don’t. WHO says they have been exceedingly cooperative, and have passed on the genome. Now you wonder, why?
It’s all a trick for to relieve Gilead of its patent. Hahahahaha. Not on its HIV drug, but on its ebola candidate.
Seriously, there is too much conspiracy theory, and yes, China will shut down their GDP because there is a degree of threat here. If you don’t try to quarantine and unknown virus like this, and it turns truly virulent, then it’s just too late.
Consider the spanish flu and how deadly that was.
Consider the possibility that the wu flu is a demographic weapon (remedy?): stories from the various “quarantined” cruise ships portray passengers confined to their rooms and having little choice but to breathe air from the ship’s ventilation system. A large number are retired with various chronic ailments. They all have one thing in common: they’re old. A cruise ship would seem the perfect laboratory to determine kill rate as a function of age.
Perhaps someone has a grand plan to defuse the “demographic bomb?”
But just how much would a reset of the DEPENDENT ELDERLY/PRODUCTIVE YOUNG ratio to a lower value actually improve the world economic outlook?
Has anyone addressed this question?
Oi, this is WS, not ZeroHedge, take your conspiracy theories elesewhere.
Now we know there’s some truth in it When these people start accusing others of being “ conspiracy theorists” that’s when you know you are over the target
Agreed, complete nonsense.
While I think that it is maybe a little too alarming to call it a cross between HIV and influenza, I do agree that this is probably much more serious than the Chinese communists are admitting. Most of the people that are dying are likely good, innocent people that harmed no one. Thus, I do not wish them ill but the best of luck.
However, I think that the death of the 33-34-year-old, whistleblowing doctor (who presumably diagnosed the symptoms and received rapid treatment) and the reported deaths of other, younger people is very disturbing. Doctors report that there is no known, effective treatment so far.
Viruses are different, so while I hope that anti-viral drugs such as used against HIV may be effective, as some Thai doctors claimed, other reports are not so optimistic. Therefore, any country (including the US) that gets a significant number of undiagnosed cases within its borders may suffer an exponential increase in cases that will overwhelm its medical system and result in higher numbers of deaths.
Medicines produced in limited quantities, ventilators (breathing machines), sedatives so the patients do not fight the machine’s uncomfortable breathing for them, even machines that oxygenate their blood in place of their lungs are used. There are a limited number of such resources in each city.
Thus, if the predictions of an expert with Johns Hopkins (Dr. Amesh Adalja, from one of our best medical schools) are correct, and this coronavirus comes to the US regularly in the future, it will also overwhelm US hospitals. In other words, even if they have great equipment available to treat cardiac arrest or cancer or to scan patients via expensive MRIs, they may have to stand by and watch patients that become infected with coronavirus die, after the initially infected patients are using all of their ventilators, etc.
Such an epidemic will also convince many that despised reforms to our medical system might be desirable, because the severely ill victims of coronavirus may have to declare bankruptcy if they survive: treatment for five to 20 days in US hospitals will cost each a hundred thousand to hundreds of thousands of dollars with huge co-pays and deductibles. Our beloved private insurers will work hard to avoid paying the full sums of such bills. That may happen to each of you.
There are multiple black swan events; coronavirus and a massive right hook knockout locust infestation in the Horn of Africa, Arabian peninsula and the Indus Valley India/Pakistan. Thousands of sq.miles of crops are being consumed.
There are one million Chinese contractors in Africa and Ethiopian Airlines is still servicing 5 large Chinese cities and connects to 45 African cities. The pandemic will explode in Africa in combination with starvation.
Your late in the article line about that it will take “a disease in the financial markets”–to kill the US economy.
In the early 1700s when Holland was still the financial and commercial center of the world the Dutch had a fine way with words.
Particularly about booms and busts.
The feature of the former was “easy” credit.
The feature of the contraction was “diseased” credit.
An accurate description.
China’s best guess is this crisis will last at least as long as SARS, two quarters. Of course, SARS didn’t spread all over the world, it’s more than likely this novel virus is already global, a pandemic is all but inevitable.
Then we have Hong Kong, which is imploding.
Cathay Pacific says it’s as bad as during the worst of the GFC and have asked all staff to take 3 weeks unpaid leave over the coming months and have slashed 30% of their routes
And today a major retailer, SASA reported an EIGHT % drop in revenue!
Hotels are empty. Restaurants are empty. The city is dying.
I have friends traveling to Bangkok this week and the airport is ‘eerily’ empty.
Other friends who are in Bali report minimal traffic on the usually congest roads.
I give this till the end of the month latest. Then the global economy will unravel.
Meanwhile the cases of virus in China are rocketing higher.
Did I mention the stock markets are doing well? I saw a headline earlier saying European markets were up because the worst of the coronavirus had passed.
China goosed the markets a bit with liquidity.
I think one effect of the coronavirus is going to be more easy central bank policies.
I shifted my stance a bit … I’m still holding 50% unallocated cash, but I’m now at 26% gold miners (I bought a bunch more on the pullback in gold on Tuesday), and both my long stocks and dividend plays are ones that I see least likely to have negative affects and may have positive ones. No oil or travel or industrial, just things like DIS, ATVI, CVS, KHC, MO and so on. Staples, health care, stay-at-home entertainment …
I have a little bit in a lot more names than that btw. I don’t trust ETFs and commissions are free, so I create my own portfolios.
Sentiment is not bullish like you’d see at a top, but I think the market is entirely driven by central bank liquidity and will pull back the moment these guys decide to slow down a bit. On the one hand I feel dumb that anyone long the S&P trounced me in earnings the last few months, but on the other I wouldn’t forgive myself if I let my guard down and bought in to their grossly overpriced FANG stocks just before a big pullback.
It disgusts me to read that you gamblers in that worthless casino whore house refer to lucky bets made as “earnings.” What have any of you ever produced of any value?
Sorry SASA reported an EIGHT PER CENT DROP
Y key is sticking EIGHTY
Nothing the Fed/central banks can’t fix.
>> Nothing the Fed/central banks can’t fix. <<
If to many electronic manufacturers will shut down, fed will start printing circuit boards… ;-)
‘But here is the thing: health scares have a tendency to blow over fairly quickly, in terms of their economic impact. In the past, they disrupted things for a few months, and then everyone got used to it and adjusted to it, and companies found partial solutions and workarounds, and life sort of went back to normal.’
Such a wishful thinking. last week I mentioned that Corona is a big game changer. I said NIRP means nothing b/c of corona- BLACK SWAN. But it got deleted!
REVERSION TO THE MEAN, needed and expected will start, whether one likes it or NOT! I really welcome it to rectify this ‘sureal’ mkt of my life time ( been in the mkt seen ’82, gone thru more than 1 secular bears mkts)
Wealth created by debt on debt is a mirage! The DEBT has been used as a panacea for all the FINANCIAL problems in the World both in private and sectors! I for a change welcone to fresh air of reality. Corona was JUST the excuse, no one thought about 3 weeks ago! Hence Black Swan!
Outside Hubei province, the death rate is very low now. It is .016%. The virus has mutated and become weaker. Let’s not forget that the CDC says that in the 2018-2019 flu season IN THE US, 80,000 people died from the flue. China has 5 the population. It would need 400,000 Corona Virus deaths to match what the ordinary, everyday flu killed in America during the last flu season.
Based on what evidence do you claim it’s mutated? Have you examined the published DNA sequences yourself? And how much skill/knowledge do you have of molecular genetics to parrot that nonsense claim?
I am quoting scientists who have the credentials to make these statements. Google is your friend. Look it up. It’s not my job to educate you.
What scientists said “The virus has mutated and become weaker.”
No google is not my friend, FYI google is an advertising firm.
I actually did search google for your sensational statement and nothing related to coronavirus came up. So which scientists said this and what were their credentials?
Have to agree that Google certainly is NOT my nor anybody else’s “ friend”
You think China is intentionally ‘panicking’ by throwing their economy into disarray? China isn’t stupid… this crisis is just beginning.
The ratio of people seeking medical attention who have recovered versus those who died causes grave concern. They do not block off cities for the flu.
From another report, of those with CV who stayed at home, some families had more than one family member die.
You can’t stop flu that way because it is also spread by birds
The death rate outside of Hubei, correctly calculated from “deaths of confirmed cases” divided by “recoveries of confirmed cases”, is around 2%.
If you’re dividing deaths by total cases, you’re making a huge mistake because nearly all of the total cases are still active – patient hasn’t recovered (or died) just yet.
P.S. a mortality rate of 2% is very similar to the 1919 flu pandemic and is far more consistent with China’s growing authoritarian responses (Outside of Hubei!) than “a typical flu” scenario.
Update: epidemiologists use “case fatality rate” to refer to deaths as a fraction of (deaths + recoveries). The term “mortality rate” is generally used for annual deaths as a fraction of total population. The nCoV new virus mortality rate is unknown – it hasn’t been around long enough – so it cannot be compared to the flu mortality rate. The flu kills maybe 250,000-600,000 people each year (2.5E5 to 6E5), out of about 7 billion (7E9), so the flu mortality rate is below 1E-4 i.e. 0.003% to 0.01%, less than 1 person in 10,000 population. Not everyone gets the flu but among those who do the case fatality rate is higher, maybe 0.05 to 0.1%. However, a new flu pandemic such as the 1919 flu can have a much higher case fatality rate, >2.5%.
If you get nCoV and subsequently die, the mortality rate is 100% as far as you’re concerned…
Finally, a comment as clear as an azure sky of deepest summer!
Whew! In these times of uncertainty when commie Chinese can’t tell to the nearest 10,000 how many have been infected with the latest fresh-off-the-farm Chinese disease, it’s a huge comfort to have guys like Roddy6667 calculate the death rate accurate to 5 decimal places.
Do you really believe the Chinese coronavirus statistics? You don’t lock down 400 million people (another city of 15 million just added) because of a few hundred deaths.
The emergence and prevalence of zoonotic epidemics is increasing, as expected. This might be a good time to start devising coverups for the US potus and his massive budget cuts to the Centers for Disease Control, Nation Institutes of Health, Medicare, EPA, grants to state public health programs, and so forth. People have tried to explain it to him, but you know how that goes.
An effective national health care system might be the country’s salvation when the big one hits, but unfortunately national medical policy is committed to short-term profit maximisation to the exclusion of any other consideration.
Don’t worry about me. I’ll be just fine.
What can it do to the stock market? Unbelievable.
I’m starting to notice a pattern these past few years.
Let’s call it a virus, too.
1). Panic that tariffs will hurt economy. Mr Market falls. Fed does extraordinary QE and rate cuts. Mr Market reaches new all time highs.
2). Panic that repos will hurt economy. Mr Market falls. Fed does extraordinary QE and rate cuts. Mr Market reaches new all time highs
3). Panic cornovirus will hurt economy. Mr Market falls. Fed continues extraordinary QE and rates cuts. Mr Market reaches new all time highs.
In none of these events has Mr Market sustained even one single wound but has in fact reach all time highs in each and every case.
None of the gifts to Mr Market every get reversed, even though it appears none of these events hurt Mr Market even 1 iota over the long run.
Mr Market has no “skin in the game” to use a phrase I don’t like.
Isn’t it comforting to know the Fed is their to ensure Mr Market is pampered and ever richer not what the event, headline?
@timbers – oh yes market is wounded! Absolutely destroyed. Now the index levels haven’t come down, but look deeper, lotsa weaknesses.
timbers – I am awaiting a new rule from the SEC that prohibits anyone from ever selling any asset at a loss. It will lighten the load on the much abused FRBs.
Coronavirus will do nothing to official reporting and market levels because the US, Japan, Europe & China are united in stealing untold trillions via fiat currency dilution from the weekly wages of the poor & middle class to prop everything up.
I can’t find enough credible info to determine if the virus itself is a serious health threat or not. I’m guessing its like another cold or flu.
However I do fear this idiocy of closing off transportation systems and quarantining people, even unrelated people, as I am hoping to travel to asia soon and dont want to get stuck somewhere when I could be enjoying my vacation.
On the other hand would be super cool if I can get some deeply discounted flights, hotels and cruises as everyone else loses their mind.
And if I’m wrong about the threat, oh well we all die whether I stay home or not. I’m ready for that are you?
One thing is assured, China politburo cannot be trusted, ergo, the outbreak is certainly getting worse.
There is a Difference in quality between dying the comfort of ones home and that of eventually kicking the bucket from a preventable disease in an internment centre in Asia after all transport is locked down and the credit cards have run out.
my wife freaked out and cancelled the trip anyway. She was not impressed by my appraisal of coronavirus. So now I have to stay at home and wait for coronavirus to reach me in the USA
Nope, I don’t get the asian luxury hotel to myself and I don’t get the experience of hanging out in a chinese-style quarantine facility and being cremated without a trace nor do I get the joy of returning home to USA after the trip and being entertained for 14 days on a US military base quarantine facility.
Why call this a Black Swan event?
A pandemic of some sort is so predictable that there is a whole cottage industry of novels about civilization being wiped out by one of them: starting with Mary Shelley’s The Last Man (1826)
There is also a cottage industry of non-fiction titles warning of the dangers: Preston’s The Hot Zone (1994) is one of the first I remember.
Severe Flu Pandemics come about every 30 years. It’s not even clear that this disease is more deadly (as a percentage) than a flue pandemic. It’s just that the lack of resistance to it means more people will catch it.
Yes, it’s not an ‘unknown unknown’, but a ‘foreseen unknown’.
No less unpleasant for all that, though.
Still, ‘black swan’ has entered the language for something very nasty and systemically- threatening that you would rather not happen.
In the 16th-century, the Venetian government placed the important city of Verona under lock-down to deal with a horrifying plague.
After a time, the city authorities pleaded with their Venetian overlords to end the quarantine, as the social and economic effects -mass poverty and bankruptcies – were deemed to be worse than trying to live with the high mortality rate.
Nothing new under the sun.
Oh, and even then, doctors with ‘cures’ were extroting and price-gouging. ……
In addition to this excellent, reasonable, article by Wolf, people might care to look at the very sound work of David Korowicz on systemic vulnerabilities and cascading failures in the supply chain and banking.
He has addressed conferences at the highest level of national and international disaster preparation: curiously, he said that most disaster planners simply didn’t get it, worked from inadequate models and assumptions, except for the US military planners.
Someone to take seriously, not a tin-foil hat person. Easily found on the net.
Obviously the stock markets think nCoV is bullish for the global economy because it will force Central Banks to cut rates and flood the ‘markets’ with even more liquidity.
I’m an idiot I guess because what I see is the mother of all bank runs coming when the lockdown in China ends. If you’ve been barricaded in your home for a few weeks/months you are going to be short of cash and maybe just a little suspicious about official statements when you notice some of your neighbors are no longer around. Chinese bank reserves are no greater today than they were in 2014 so the PBOC better print a lot of cash and deploy the PLA around the offices of those Shadow banking outfits that loaned money to enterprises that have not generated any revenue since the lockdown started.
Another worry is a NHK news story. At least three suspected cases in Japan initially tested negative for nCoV. However a subsequent test showed all three were in fact positive. The alarming thing is one of those was a Chinese man who was allowed to return to Hong Kong. If the Japanese who are only dealing with a few dozen cases ( at this time) misdiagnose 10% with false negatives what is the likelihood less competent and more stressed labs are doing the same?
Re: Japan and changes in test results – Might not be false negatives, just slower growth of the infection. Subclinical on the first test, but more abundant on the second.
The premise that the incubation time is at most 14 days could be wrong. If the incubation time can be >14 days then most of the quarantine timelines and other protective protocols will be inadequate, so this ought to be carefully researched.
Update: False negatives may be a significant concern.
Chinese media, the BBC and many other news sites are reporting on Li Wenliang, a doctor in Wuhan who was among the first to spot the new disease and try to warn others (and got punished for his efforts). He caught the virus from a patient and became ill. Key point here: He was hospitalized on 1/12 and tested several times for nCoV, all negative, but finally positive on 1/30.
Worry is that the current test may not be able to spot the virus until late in the progression.
Dr Wenliang just passed away and that’s why his case is in the news today.
BBC article here: https://www.bbc.com/news/world-asia-china-51364382
OK, someone (Wolf?) please to investigate a couple of questions:
1. Is there, in fact, a biowar laboratory in Wuhan, and, if so
1.1. Is there any credible evidence that that lab is capable of producing this virus, based on prior product development or whatever?
2. Is it true that 80% of healthcare/medical services are devoted to members of the Chinese Communist Party?
2.1. And, if so, is there any clear measure of the number or percent of the population of those people?
3. Is there any credible evidence that this new virus is only harming/contagious for people of Asian ancestry/genetics?
4. Is there any clear evidence that people are being infected by people who are not showing any signs/symptoms at time of transmission.
Let’s face it, at this time, there are tons of rumours out there/ on the net, etc., but very little clear information on any of the factors above as well as other possible vectors, etc…
“OK, someone (Wolf?) please to investigate a couple of questions:
… a-whaka-doodle-ton-of-questions …”
Certainly. Who do I invoice and where do I send it?
You’re better off ignoring the fake-news mongers out there. For them, throwing fake-news BS out there and promoting it is a form of entertainment, and for the publishers of this fake-news stuff, it’s money, lot’s of money. But this stuff, if you take it seriously, pollutes your brain.
How do you differentiate between the fake news mongers and the information put out by the Chinese government?
EXACTLY! Hence the formatting of my questions: some of the questions are based on CCP issued ”information.” Other Qs based on what are usually fairly cognizant sources…
You have to be somewhat educated and have some common sense (AKA critical thinking ability).
You should only trust what you see on CNN
Some people who died, died 14 days after the appearance of symptoms. Reported deaths are doubling at an alarming rate. Your article is old; 500 have died, maybe more. Supply chains in Korea are disrupted. Chinese chickens might die as the road to supply them with chicken feed is blocked. The panic that is occurring does more damage than the death rate. They want to quarantine as this is more deadly than the flu. The death rate is difficult to calculate as some people may not report they are sick. I saw a scientist’s YouTube video. Of a group who went to the hospital, 15% died and more had not recovered. The facts of the case may change with more evidence.
Sure, the article is “old.” It’s the transcript of my podcast, which came out Sunday mid-day. So if you want it when it’s fresh, you can always listen to my podcasts when they come out, rather than waiting for the transcript.
You are a gracious host, and show an impressive amount of patience for some of your more “fact free” commenters.
Two well done 2019-nCoV tracking sites. At this moment, 28,085 in China infected, 45 in Japan, 28 Singapore, 25 Thailand, etc., 565 dead.:
And here is the US CDC site on the flu, updated weekly, for the US alone, for this flu season:
19-26 million flu illnesses in the US this season so far
180,000 – 310,000 hospitalizations in the US
10,000 to 25,000 “flu deaths” in the US this season
For China, given the population size, you can multiply this flu data by four to get China’s flu deaths.
We got a clue yesterday, WHO pleading for nearly $700 million in new funds, in addition; ‘distributing roughly 500,000 masks, 350,000 pairs of gloves, 40,000 respirators, 18,000 isolation gowns and 250,000 diagnostic tests to affected countries’ …. This is becoming a global crisis.
Viruses hate sunshine and love blue light and LED and flourescent…why is this being puffed as though humans had no protective immune system that can be boosted with good habits and good food?
Promiscuous crowds should be avoided in favor of outdoor walks and citrus fruits…..we are our best friend if we want to resist any virus.
The economic issue may resolve itself as the weather warms and people go outside more as well. I dislike the boogie man narrative…it can actually make people much sicker.
You can observe a lot just by watching. -Yogi Bera
Time to re-state the Timbers Theorem:
“The Fed doesn’t care about the economy. If the entire economy of the Entire Known Universe disappears this second – in other works we have negative 100% growth instantaneously – the Fed would care less. It wouldn’t even notice. Conversely, if the Stock Market declines a small amount – in the rage of 5% or more – The Fed would panic and spring into action to make it go up.”
Boeing has another crash. It’s stock is higher than when I last checked about a week ago.
Reality, economy, lives, wages, inflation – none of this matters.
The only thing that matters is, that stock go up.
Wolf you forgot to mention people in general are keeping their cars for longer. There really isn’t much difference from a car from two years ago and a car today, save the later being newer.
Car manufacturers can still make money of that, by offering extended repair services contrats6 and selling “official” spare parts. But of course is way less money that if people changed cars more often.
1) The coronavirus built a wall with China, USD/CNY contracted the virus.
2) USD/CNY weekly : trending up from 6 in 2014 ==> trending down, from almost 7.2 on Sept 2019 to 6.84 on Jan 2020. The latest reading have a large selling tail.
3) Chinese tourist cannot spent US dollars abroad, Chinese mfg delay importing parts and raw material and oil. Chine $ debt was kicked down the road, under stress.
4) Every flue pandemic fade away in Mar/ Apr, but China wall will rise higher, not against new mongols invaders, but to put a clamp on the Chines export machine to Europe and US.
5) Don’t waste a good downturn without blaming China. Use this opportunity to change US character.
6) US industries sophisticate software, AI and robotic, can compete and fill
7) MCD hamburger flippers will be replaced by new AI, will find higher pay jobs as codes, operators of advance industrial machines, cyber, where demand is high, not as gardeners or snow removal.
“…higher pay jobs as codes, operators of advance industrial machines, cyber…”
As these jobs require strict logic most of the “filpers” will be unable to perform in these jobs as thinking is a lost art.
“And the People’s Bank of China said it would drown the market in liquidity over the next few days to prop up the markets.”
More than that, the markets will be hit with a Tsunami of support, given the fact you just noted that US company supply chains have been diverted to other countries.
Now all this stimulus amounts to devaluing the Yuan (which China does not want to do), so it will be interesting to see how far they go. Possibly far.
This virus game is China’s to lose.
The term “Liquidity Trap” should be discussed. This virus could be catalyst, now that China did a massive liquidity injection. Of course their interest rates aren’t as low as ours, but our market rides the same wave of money. Fed put out (nearly) back to back 14 day REPOs both large and under subscribed. Already the bonds funds are pulling back (ala TESLA?) and that could be the primer. Stocks in melt up there is nothing else in the world to own. So far FED is winning the propaganda war on low rates forever, but GDP is sneaky good. Market has entirely discounted a recession, yet Rickards says another cut in July? Sooner or later the Fed has to cool it down. Liquidity and Interest rates are married, and it’s going to be a murder suicide.
1) Both the DOW and SPX made a new all time high.
The DOW @ 12.45 is a black hammer at the top. Its bearish. The DOW might make another all time high before the close.
2) Since Jan 31 big red candle, the DOW popup on x4 gaps,
x4 air bubbles and its shortening the thrust. The DOW momentum is fading.
4) The 30 min chart : on Feb 3rd, after the gap, a big green bar, a takeoff. It faded into a trading range, above the gap, leaving behind a selling tail.
5) Feb 4, after the gap, was a rest stop for the whole day.
6) On Feb 5, the DOW was pushed higher, on slightly higher volume, but failed to exceed the Jan 17 new all time high.
7) That have changed today, at the open. The DOW gap up at the open (5 min chart), made a new all time high @ 29,406.39, but instantly
turned around to close today open gap.
8) At 11.15 the DOW produced a long legs diji (5 min) tested today open, but was rejected instantly. There were no takers, not at 11.15 and not at 11.30.
9) The DOW is testing today high for the last 4 hours. Today trading range tell us about the battle between buyers and sellers.
10) Today trading range build a cause. A cause to cont further up, or to move lower.
Let’s not overlook that the 34 year old doctor who was one of the first to warn of the novel coronavirus has now died from the virus.
Influenza kills primarily the elderly, a small number of the very young and the immunosuppressed. Influenza doesn’t cut down otherwise highly functional people in the prime of their lives. Seasonal influenza doesn’t put entire cities on lockdown.
I would take the Chinese numbers with a big grain of salt.
re: “… official numbers in China may have to be taken with a grain of salt ..”
I think they need to be taken with a couple salt mines.
FWIW, my attorney nephew living in Hong Kong says there’s ‘some panic that is slowing down business.’ He can work from home for the week (which he often does anyway).
A friend in HK sent me photos the other day of the CBD in Hong Kong – empty at 4pm. He was in the massive IFC mall at 11am – empty.
Another friend sent me photos last night in Causeway 830pm in a popular restaurant – empty (just him and a few waiters)
People are sending their kids out of HK. Those who can are leaving and working from other countries.
Panic buying has started
Meanwhile the factories remain closed in China and the JIT supply chain is about to be starved of oxygen at the source. If these factories don’t get back to work in the next week or two shelves WILL go empty – everywhere
Not going to a restaurant isn’t “panic.” For example, when it’s raining really hard on a Saturday night, we are likely to skip going to a restaurant. But it’s not because we’re “panicking.” In HK, people are cautious and avoid crowded places. That’s very “reasonable,” like washing your hands a lot, and not “panic.”
Wolf – I do business in Asia. I have thousands of contacts in HK and the region. I was just there for 10 weeks and it was already bad due to the protests.
I think I have a slightly better grasp of what is happening in China and Hong Kong
The restaurants in Hong Kong are empty. Lunch and Dinner. I have a client who owns 30+ restaurants — he is closing them one after another. Some of them have been in business for two decades.
Soho the main expat restaurant district is half boarded up.
This is not ‘honey let’s eat in tonight’
Hotels are empty – I was paying 1/4 of the normal rate in early December (30% occupancy).
I was supposed to fly there next week and the rates were even lower. Hotels are closing their restaurants including the icon Gaddis. They are empty.
Another friend has send me photos of the CBD and some major high end malls – empty. Next to nobody. Shops are dying.
His business is events for big brands — business has collapsed – he is hanging on by his nails.
Everybody is hanging on by their nails
The SCMP is reporting empty shelves in grocery stores as people stock up on non-perishables.
I know loads of people who have moved their kids and wives out of HK. They are staying on as they need to for work.
There are literally thousands of people queuing at chemist shops on the RUMOUR they may have face masks arriving. Thousands queue overnight
Meanwhile in China they are barricading people into their apartments if the exhibit a sniffle (google that one – they WELD the doors shut!)
Hotels across Asia are empty, not just HK and China Airlines are empty. Cathay just slashed nearly 1/3 of all flights.
This is a panic.
You are completely underestimating what is happening over there.
I suggest you ignore the stock markets both in the US and HK/China. The central banks are obviously papering over this disaster with hundreds of billions of dollars and buying up equities.
It’s not panic. HK’s economy has been in terrible shape for months due to the protests. Hong Kong Airlines has been in terrible shape for months, nearly went bankrupt in December. The protests shut down tourism, shut down the restaurant scene, shut down retail… Now they have the coronavirus to deal with. And it made it even worse.
Hong Kong’s economy went into a massive recession in Q3 and Q4 last year, with GDP decline of -2.8% and -2.9% respectively, long before the coronavirus.
My wife, who is Japanese, works for an exporter (to Japan, China, and Korea). One of the owner’s daughters is in HK right now. And so we get those accounts. It’s awful. HK is a crowded place, and they’re supposed to avoid crowds, so no one goes anywhere, and she exercises by running up and down the stairs in her high-rise, and the like. It’s awful in that sense.
And if your business is in tourism or restaurants or retail, your business was hard hit by the protests, and the steep recession in Q3 and Q4 last year, long before the virus appeared. And now it’s getting hit even harder.
My wife also has quite a few Chinese colleagues. So I hear a lot of scuttlebutt about China. Hebei province must be hell, and Wuhan must be hell because the whole place is locked down — but none of these Chinese colleagues of my wife know anyone in China who has been infected with the corona virus. People are now very careful to avoid getting it. That’s not panic. That’s “reasonable.”
As I pointed out in my podcast, tourism and the travel industry are getting hit hard anywhere. I can see this right here in San Francisco. We live in a touristy part of the city, and I go to Fisherman’s Wharf almost every day on the way to my swim club, and on a gloriously sunny day like today, the sidewalks would be full with people, and today they were empty. It’s not just the Chinese that stopped traveling.
For quite a while, you have been trying to post your “everyone-dies-and-everything-collapses” fear-porn, at first linked to the price of oil and now linked to the coronavirus. I told you before that your “everyone-dies-and-everything-collapses” comments get shredded, whether they’re linked to oil or this virus or anything else. I understand that this is your schtick, and that you’re just having fun with this fear porn, no matter what you attach it to, whether it’s the price of oil or a virus or whatever, but I won’t let you abuse my site to spread it.
No it is not a Black Swan Event. A Wharton or Harvard grad that was trained in Predatory Economics would callously and coldly remind you that if a human unit goes down on the production line that unit will be efficently removed and disposed of while a new unit is installed. The Daleks would swarm and repeat to the new unit . You Must Obey or You Will Be Exterminated …..Exterminate …..Exterminate.
Shouldn’t you change your name to Dr Who? ….or is this the Master?
Maybe Dr Opticalrectalitis?
Javert Chip: How about DR Optorectillium instead ? Sounds a little more sinister. Dawns Early Light made me think of DR WHAT? or DR WHOM? These ideas will keep my small brain pan busy for a while , thanks.
high marks for sense of humor
To Willy’s comment:
Tonight on Global News BC, they interviewed some Asian business owners. Restaurants are down 70% in Asian sections of Vancouver.
My question to readers: Would you book a cruise this year? What about the people already booked for the ships now quarantined? A lot of those trips include airfare and hotels to and from. The knock on effects, multiply.
I wouldn’t go on a cruise, but apparently it is huge business for Seattle and Vancouver. Maybe I should have said, “was big business”.
1) 41 more cases of coronavirus on a Japanese cruise ship.
2) O/N USD/CNY is down. Feb USD monthly bar is up, within
few days reaching 98.19.
3) July 1991(H) @ 98.23 is the LT resistance line.
4) During 2014 USD made a jump. On Mar 2015 it showed a Sign Of Strength (SOS).
5) For 5Y USD osc around the resistance line, doing backups BU/ LPS.
6) The coronavirus might send USD up, in a new campaign.
7) July 2001(H) @ 121.29 is the next resistance line.
8) According to my count : June 3 2019(L) to Oct 3(L),
SPX tank is out of fuel.
9) Short term count : Jan 27(L) til Feb 4(L), reach the same conclusion.
10) Today high is an upthrust.
USD @ 98.33 backing down from 98.45 > the LT resistance
More people will die in China from starvation and dehydration
due to coronavirus gov stupid responses, than the virus itself.
Not anytime soon. Households are allowed to send someone out for food, and they’re keeping basic infrastructure going. The infrastructure and food supply won’t break down unless the virus becomes a lot more virulent. The government is playing for survival and they know the iron rice bowl comes first.
The Chinese government is not stupid. They are very rational and technocratic bureaucrats, not really concerned about the individual, they care about ‘the masses’.
One should worry at least a little bit about what was special enough about this outbreak to make the Chinese government decide to shut down the entire country.
Thanks for your feedback! On my question above.
How many people are going to travel far from home? Going on a cruise with cruise ships being quarantined? Why take the chance if you don’t have to. Thats airlines, resorts, cruise ships, hotels, taxis, you name it. And this won’t have an impact on economy or market, really? Maybe the Market can stay high if there’s lots of fake government trading….via banks and hedge funds given liquidity…to save us all from a Virus….Our sickness is not the Virus.
“Global tourism, which relies heavily on Chinese tourists, could experience a negative growth of more than 30 percent,” said Iris Pang, ING Wholesale Banking’s economist for Greater China, in a commentary.
“Our base case is for the virus to be contained by the middle of this year,” he said, adding that Thailand could record a 15 percent decline in Chinese tourists for the full year.
Factories in China cannot wait till ‘middle of this year’ to reopen.
What about cruise lines? Hotels? Airlines?
Willy, not just Chinese tourists….lots of friends of mine in love with travel and cruises are thinking about travel in general, maybe just a good road trip in North America, and won’t come with a mile of a cruise now….
It is much more accurate to state that thousands die of influenza-like illnesses, not influenza. The deaths attributed yearly to laboratory confirmed influenza in the US is only a few hundred.
The US CDC calls them “flu deaths.” And I’m sticking with that, rather than splitting hairs.
The CDC can call it whatever they want to, but it doesn’t make it truthful or factual. Facts indicate that only a few hundred people die from influenza confirmed by a clinical laboratory test. All other deaths are considered influenza-like illnesses and their are several hundred viruses that can cause these illnesses.
Looking at the estimations of the spread from Imperial College and from a paper published in The Lancet on 31st Jan, I think we can disregard the official figures quite readily.
The official figues most likely represent the capacity to test and record cases, rather than the course of the actual spread. I believe the HKU paper in The Lancet estimated over 75 0000 infected on Jan 25th in Wuhan alone, with a doubling time of 6.2 days, and a more recent estimate from Imperial College suggests that currently there are at least 50 000 new cases per day (and growing), and the doubling time is more like 5 days.
Looking at the number of infected on that cruise ship off Japan it certainly looks like it probably spreads very easily. After having completed testing of fewer than 300 passengers they have recorded 61 cases of the infection.
What is particularly worrying, then, is that in areas that experience outbreaks, even if only a fairly low percentage of cases require treatment of some type, then even advanced medical systems will likely quite quickly become overwhelmed, and otherwise avoidable deaths will be added to the count.
I think that the actions being taken in China speak much more loudly than the words spoken and the figures published.
In economic and financial terms, if this thing turns out to be a trigger for deflating the massive bubble we’re in, then I’m sure that it will be broadly claimed to be the cause of our financial woes and for derailing an otherwise strong and booming economy, and that it was something nobody could have seen coming. At that point I suspect my head will explode.
1) Ali BABA monthly with selling tails stories.
2) They will visit your place, because being locked down all day is boring.
3) BABA provide beer and snacks, – using females bikers – so u don’t expose yourself.
4) RCL, – the Royal Caribbean Cruises, Jan/ Feb at peak season. Now RCL offer a whole cruise ship for two, at 500 each, for a private party. Drinks for free.
5) RCL is up from 6 in 2009 low to a two years trading range above 100.
The chart tell us that RCL is totally immune from the coronavirus. RCL is doing well, its a good investment.
6) PBOC cash infusion enable credit cards holders to survive the Pangola virus.
7) Its the new year of the Mad Debt online invaders.
8) If u can’t work u pile debt, because there is nothing else to do all day.
9) With thousands of new victims Ali BABA bikers refuse to go. They will not ring on your door bell, because they can be infected. Wuhan supermarkets are closed with empty shelves. Nothing left to sell.
10) You either stand on the food line for hours, or die from dehydration.
11) If you don’t have enough cash to get a bottle of water in the black market, quench your thirst in gov food centers run by the PLA with thousand of people like u.
If what is currently happening in Hong Kong – restaurants completely empty of patrons, malls with no shoppers, streets mostly empty of people and panic buying of non-perishable goods leaving grocery store shelves empty….
Was happening in New York right now.
I wonder if people might get a little more that they are about this situation that is unfolding in Hong Kong.
Meanwhile, nearly 100,000,000 people in China are locked down. Armed guards are patrolling preventing people from leaving cities such as Wuhan and Hangzhou.
Foxconn has announced factories in south china will not open until at least Feb 20 – and south china is nowhere near the epicentre of this pandemic.
Wuhan is a major factory hub. It is in complete lockdown – the streets are empty (there are plenty of drone videos online of this). The infections are increasing (and we have no idea what the real numbers are).
Auto makers are starved for components and Korean brands have already stopped the lines. You can’t assemble a car without ALL the components.
A single one is not available and the whole shebang shuts.
I reckon two more weeks and we start to feel this.
You should consider publishing my doom analysis Wolf – it might help your short position if enough people get wind of what the risks are right now :)
If your comments of everything-collapses-and-everyone-dies come true — whether they’re based on the price of oil or the coronavirus or something else — then why short anything? Why even write the comments?
According to your analysis, we will all be dead in a few months, so the short position couldn’t even be covered because there would be no one to buy those shares back from to close out the short position. It will be all, POOF, gone. You see the absurdity of those comments?
Yes, there are consequences of the coronavirus and of the low or high price of oil or whatever, but those consequences are part of the economy, and part of life, and the economy and people respond to them in some way and deal with them. That’s how it has always worked.
I know that this isn’t as much fun to write about than a total collapse theory, but hey. It can’t all be just fun :-]
Wolf – I believe shale is responsible for 8 million barrels of oil per day? That’s roughly 10% of our daily oil burn.
And every barrel of shale loses money. And shale wells deplete at an insanely fast rate (see Red Queen Syndrome for implications of that)
As Art Berman is fond of saying, shale is the retirement party for oil.
And we know what happens soon after retirement.
Timing is a bitch on that one though. When you are faced with total collapse, you fight and scratch and claw and print trillions upon trillions of dollars/Euros/Yuan etc…
The oil-related collapse is a 100% certainty.
The coronavirus, well with that it is difficult to be certain. It might be contained tomorrow. Or it might continue indefinitely (SARS went 6 months)
But it is certainly interesting to try to understand the implications of a protracted pandemic — you seem to dismiss the risks here believing this is not a Black Swan — or that this will hit the US economy hard.
I on the other hand disagree. Yes this might be over by the end of the month.
But if it is not then all that panic buying in Singapore and Hong Kong that is happening because people KNOW that the China factories are closed, well the same factories stock your shops in California….
Nah – can’t happen there though right. Give it a few weeks – factories remain closed and you’ll be panic buying as well.
As for shorting, I commented recently that shorting is a complete waste of time:
1. The Central Banks have demonstrated that they will NOT allow the markets to crash — they have demonstrated time after time that fighting them is a losing battle. They will tolerate adjustments but a big crash no way. The will pump out stimulus and slash interest rates and use plunge protection teams (those do exist) to stop a plunge
You are obviously finding this out the hard way right now. Your short should be paying off big time right now but nope – the CBs are pumping up the markets like a balloon. We have the virus and yesterday we had Germany industrial numbers down to GFC levels.
Markets are up – on that???
2. At some point the CBs will push their buttons and levers and nothing will happen. A drop will become a plunge. You’ll make a boat load on your shorts but you better spend the boat load VERY quickly, because the plunge will not stop. We get to see what would have happened in 2008 if the CBs didnt step in.
There is a nice analogy between the coronavirus and central bank stimulus.
We have been able to defeat mass die offs because we have modern medicine and measures to hold them back. However viruses and plagues have been around a LOT longer than we have – and they are a LOT smarter than we are. They bide their time (what’s a century or two when you’ve been around as an organism for 50 million years…) and they continually play chess with our scientists.
Eventually they bust through our defenses and wreak hell upon our very fragile just in time supply chain and global economy.
This virus appears to be highly contagious (62 of 273 off that cruise ship that were tested came up positive – WOW)
Are the horsemen of the apocalypse mounting up? Maybe….
Then we have the CBs and whatever it takes. We have tamped down the GFC to the point of believing it had gone away or that at least we could control it. Whenever the beast’s head pops up WHAM we smack with stimulus and it retreats.
But the longer this goes the stronger it gets – and we have to keep hammering it over and over and over. But at some point we get tired, and weaken, and the smack becomes a feeble tap on the head (at some point dropping interest rates results in a feeble tap to the beast’s head…)
Eventually, like with the virus, the laws of nature and physics and math assert themselves. They always do.
We can fend them off for a short period of time (a century with viruses and bacterial infections – a decade + with this financial problem).
At this point it looks like our time is up. If that virus does not get us the math will – ‘what cannot continue will stop’ Herb Stein
I have quite a few friends in the finance industry. And most of them have been bucket listing for some years now (one husband and wife are on a cruise in the antarctic right now as part of their bucket list).
These are the ones who do not suffer from normalcy bias. They ‘get’ that the math does not add up anymore.
They ‘get’ why Wework and Tesla and Uber and the dozens of other ridiculous ideas that get billions thrown at them.
They ‘get’ that it is impossible to raise interest rates without a total implosion – that pensions will NOT be paid.
They ‘get’ that these are all symptoms of a system that has run it’s course.
That in a finite world, that requires infinite growth (or it collapses) that this result was inevitable.
And here we are – moaning and wailing about how nothing makes sense.
Like I said, these are all symptoms of imminent death of civilization.
It all makes complete sense, if you ‘get’ it. And don’t let normalcy bias cloud your vision.
From that SCMP article (a must read as it might be the antidote for normalcy bias)
The ripples will only amplify before receding, as the coronavirus outbreak shows no signs of abating, even if the recoveries are double the death toll, while a cure remains elusive, some analysts said. Guangdong, Zhejiang, Henan and Jiangsu, the four engines of China’s manufacturing powerhouse, also happen to be among the 10 most afflicted provinces, which means all their factories are sitting idle under the government’s stop-work order.
“We are worried about everything, due to the shortage of labour, raw material and even face masks” to protect staff from infection, said David Zhang, a senior executive at Suzhou Hazardtex, with 50 workers on staff. “It will take at least two weeks for us to secure sufficient supply of raw materials to run our factory at the full capacity. Without enough face masks, we are unable to make full use of our labour force either.”
Henan province in central China has also ordered all business operations to shut. In the provincial capital of Zhengzhou, Hon Hai Precision Industry has 100,000 assembly workers on staff – expanding to 300,000 to fill pre-holiday shopping orders – who assemble Apple’s iPhones, iPads and other electronic devices from fitness bands to smart watches for major consumer brands.
The Corona Tapestry
China to pump 150 billion yuan ($22bn; £16.3bn) into its economy on Monday Feb 3rd to help protect it from the impact of the coronavirus outbreak. If the FED can do it, and the EU can do it, then so can….
RIP Dr Peter Salama. See WHO website statement. Too soon.
Thousand Talents Program. Harvard’s Charles Leiber covering up links to Wuhan…why? Nanotechnology – Vista Therapeutics.
Turab Lookman, former scientist at Los Alamos National Laboratory, pleaded guilty to a charge of making a false statement to a government investigator about his involvement in the Thousand Talents Program.
Search Nautilus neural lace lieber Elon Musk.
I stumbled upon an article that referenced a world Bank study of the economic impact of several relatively recent pandemics. They noted that if a pandemic occurred of a similar scale as the 1918 Spanish flu, the world economic impact would be in the trillions of dollars with serious impact on GDP. Let’s hope that doesn’t happen.
But if China doesn’t “open for business” with unrestricted travel soon, its economy will suffer calamitous declines as fragile mountains of debt and leverage collapse and supply chain disruptions push global corporations to find permanent alternatives elsewhere.
Here’s the fatal dilemma: maintaining the quarantine long enough to truly contain it (which requires extending it to the entire country) will be fatal to China’s economy.
But ending the limited quarantine and falsely proclaiming China safe for visitors and business travelers will only re-introduce the virus to workplaces and infect foreigners who will return home as asymptomatic carriers, spreading the virus in their home nations.
Does anyone really think this virus has peaked? SARS took 6 months and was never entrenched across China like this.
The numbers are all bs because most people are not even going to the hospital because they are full.
But the fake numbers are not even accurate (assuming they count people getting tested) because there have been thousands of new cases each day and only 4000+ have ‘recovered’.
This would mean the hospitals are fuller than ever so that would likely mean that even fewer people are even examined.
End of the day, China is indeed faced with a dilemma. Keep the factories closed and collapse the supply chain – or open them and allow workers in and risk wide spread infections amongst the workers.
Door A leads to hell within a couple of weeks.
Door B probably leads to hell but probably is better than definitely